Thought for Thursday

Readers of yesterday?s post Spin Cycle got a preview of my piece in today?s Fin (subscription required) and the debate in the comments thread has already anticipated some of the issues I raise. I commend a policy of higher taxes and more services to both parties. Here?s an extract

For Labor, a policy based on an explicit tax levy would provide a resolution of the inconsistency inherent in promising both the return of bracket creep and improvements in public services. Although such inconsistencies are par for the course in opposition, they will have to be resolved before Labor can present a credible program to the Australian electorate.

To take this course, Labor would have to drop the refrain that Howard’s is ?the highest taxing government in history?. The argument is bogged down in definitional disputes about whether the GST is a state or federal tax, and has gained no electoral traction.

By contrast, Crean’s proposals on health, education and the rehabilitation of the Murray-Darling have produced a strong positive response. In particular, the AC Nielsen Poll, showing Labor with 49 per cent of the two-party preferred vote is scarcely consistent with the view that the next election is unlosable for the government. With the right strategy, Labor would be a serious contender.

Looking back at the last ?unlosable? election, in 1993, it is evident that the threat to Medicare was a more potent issue than the much-overrated GST.
The government should also reconsider the wisdom of cutting taxes and services It might seem paradoxical to commend a policy of tax increases to the current government, but Howard and Costello have shown a surprising amount of flexibility on this score. Despite the disdain of economic purists, they have introduced a string of special-purpose hypothecated levies, and do not seem to have suffered electorally as a result.

Given the adverse reaction to the erosion of Medicare under this government, an increase in the Medicare levy to finance a return to bulk-billing would be a sensible political response. And, for a government that prides itself above all on not being like the Fraser government, it’s worth considering that Fraser scrapped Medicare and abandoned tax indexation. This government would do well to take the opposite course of action on both issues.

How much money would you get from abolishing the health insurance tax break?

Also, abolishing family trusts would free up a little cash.

My question is: would getting rid of a few lurks for the relatively small number of well-off people who use them (=not many votes lost) be enough to fund enough gravy for the masses that they would actually notice?

The onus on the small Government supporters ie the true ones who wish to reduce the Public Sector
by reducing Welfare is to show what they will do to ensure the regressive nature of this will not happen. After all one of the first things you learn from Public Expenditure at Uni is that it is Government expenditure that makes the system progressive.

For those who wish to expand the Public sector the onus is to reduce obvious fat ie HEREOC or duplication ie ASTIC so the poor get the obvious benefit.

The other large debate is what is a public good.
What happens whne you have something which is both a public and a market good/services such as education.

Perhaps the Federal Government could address any holes in the tax system that still prevail. For instance, one of the worst decisions of the Hawke Government was the refusal to tax gold-mining. Why did they do it? Because Hawke’s mate Burkey was in the pocket of the miners. I am not aware if the gold tax was introduced subsequently, but if not, that would be one well worth looking into.

Getting rid of the private health rebate, or scaling it back substantially would be enough to fund a nice bunch of election promises ($1 billion – $2 billion).

Curbing the preferential tax treatment of trusts and closely held companies would bring in *lots* of money. I’m stunned Labor hasn’t run hard on this, given the vulnerability of the government (most of the Cabinet have some sort of dodge going). Of course, I haven’t checked the financial arrangements of Labor’s frontbench lately.

Abolishing the private health rebate would actually be a risky enterprise vote-wise. Presumably that’s why Labor hasn’t proposed it. Close elections in this country are decided in swinging seats in outer suburbs and regions. Notwithstanding their whinging – and downward, upward and everywhere envy – outer suburbans tend to be pretty well off. Four-wheel drives, appreciating property values, renovations and the like.

They probably have a high takeup rate for the health rebate.

They’re the ones frightening Labor into keeping this silly policy. Personally, I reckon the ALP should tell them to get f*cked and concentrate on the regions, which are actually doing it tough and have less reason to like the government, but sucking up to the greedy self-obsessed “mate, I’m not getting a fair go” outer suburbanites is an article of faith with Labor.